Most disputes between a manufacturer and an independent sales rep are not really about the product or the territory. They are about a sentence that was never written down. Was the commission earned when the purchase order arrived, when the product shipped, or when the customer actually paid? Does the rep get paid on the reorder that lands three weeks after you parted ways?
A commission-only sales rep agreement is a short document that answers those questions before anyone has a reason to argue about them. This guide covers what belongs in one, which clauses cause the most trouble, and a template outline you can hand to your attorney.
A rep agreement is not a commission plan
Most of the free templates you will find are written for employees on a base-plus-commission plan. That is a different document. A commission-only independent rep is a 1099 contractor who runs their own business, carries multiple lines, pays their own expenses, and gets paid only when they produce.
That changes what the contract has to do. It has to establish contractor status clearly, define what the rep is authorized to do on your behalf, and set out a commission mechanic precise enough to survive a bad quarter. If you copy an employee comp plan and swap the names, you inherit misclassification risk and a payment clause that does not fit how independent reps actually sell.
For background on rates and how the model works, see our guide to commission-only sales reps.
What to include: the clause checklist
| Clause | What it settles | Common mistake |
|---|---|---|
| Appointment and scope | Exclusive or non-exclusive, and for which products | Granting exclusivity by accident with vague wording |
| Territory | Geography, channel, or named account list | Defining territory by state when the rep sells by chain |
| Independent contractor status | Rep is not an employee and cannot bind the company | Requiring set hours or exclusive time, which undercuts the status |
| Commission rate | Percentage per product line or tier | One flat rate across products with very different margins |
| Commission base | Net invoice, gross, or after freight and discounts | Saying “on sales” without defining the number |
| When commission is earned | Order acceptance, shipment, or customer payment | Leaving it unstated, which is the single biggest source of disputes |
| Payment timing | Monthly or on a set day after the trigger event | No stated deadline, which several state statutes penalize |
| Chargebacks and returns | What happens when a customer returns or does not pay | Clawing back commission with no time limit |
| House accounts | Which accounts are excluded from commission | Adding house accounts later without notice |
| Split commissions | Who gets paid when two reps touch a deal | No rule at all, so both reps expect full commission |
| Order acceptance | You keep the right to reject an order | Rejecting orders repeatedly with no standard |
| Term and termination | Notice period and what counts as cause | At-will with zero notice, which reps will not sign |
| Post-termination commissions | The tail on orders in flight | Silence, which looks like termination to avoid paying |
| Confidentiality and IP | Customer lists, pricing, trademarks | Claiming the rep own contact list as your property |
| Non-conflict | Whether the rep can carry competing lines | Broad non-competes that a multi-line rep cannot accept |
| Dispute resolution | Governing law, venue, mediation or arbitration | Assuming your home state law applies automatically |
The four clauses that cause almost every fight
1. When the commission is earned
Pick one trigger and define it in a single sentence. Earned on customer payment is the most common for consumer goods and the safest for cash flow. Earned on shipment is a middle ground. Earned on order acceptance is the most rep-friendly and exposes you to commission on orders that later cancel. Whichever you choose, say what happens if the customer pays late or partially.
2. House accounts
List them by name in an exhibit, not in the body of the contract. That way you can update the list by amendment instead of renegotiating. Also state the rule for what happens if a house account starts buying a product the rep introduced.
3. Tail commissions
This is the clause reps read first. A reasonable structure pays commission on orders received within 30 to 90 days after termination that came from the rep work, and pays out on a defined schedule. Without it, an ordinary termination looks like an attempt to keep a large commission, and that perception is what turns into a claim.
4. Exclusivity
Exclusive territories motivate reps and cost you flexibility. If you grant exclusivity, tie it to a performance floor with a stated cure period, so an underperforming rep does not lock up a region indefinitely. Non-exclusive is the safer default for a first agreement.
State law matters more than most manufacturers expect
Roughly twenty states have sales representative commission statutes covering independent contractor reps, separate from wage law. Several provide multiple damages for unpaid commissions. Treble damages appear in states including California, Arizona, Arkansas, Colorado, Indiana and Maine. Double damages appear in Georgia, Kentucky and Michigan. Kansas and Minnesota add daily penalties. Most statutes also award attorney fees to a prevailing rep and set a payment deadline after termination, commonly between 13 and 45 days.
Two practical consequences. Put the agreement in writing, because some states require it. And treat the payment timing clause as a compliance item, not a formality. This is general information, not legal advice, so have counsel review the final document for the states you sell into.
Template outline you can hand to counsel
- Parties and effective date
- Appointment, products covered, exclusive or non-exclusive
- Territory or account definition
- Independent contractor status and no authority to bind
- Rep duties, reporting cadence, and any performance floor
- Company duties: samples, pricing, lead time, marketing support
- Commission rate schedule by product line
- Commission base and when commission is earned
- Payment timing, statements, and audit rights
- Chargebacks, returns, and cancellations
- House accounts exhibit and split commission rules
- Order acceptance and pricing authority
- Confidentiality, customer data, and trademark use
- Non-conflict and competing lines
- Term, termination for cause and without cause, notice period
- Post-termination commissions and final accounting
- Indemnification and insurance
- Governing law, venue, dispute resolution, attorney fees
- Notices, assignment, amendment, entire agreement, severability
- Exhibit A: products and rates. Exhibit B: territory. Exhibit C: house accounts
Before you send it
Read the agreement once from the rep side. A commission-only rep is investing their own time and travel with no guarantee of income, and they carry other lines that already pay. If your contract has no tail, no notice period, and a house account list you can expand at will, a good rep will pass and a desperate one will sign. You want the first outcome to be a yes.
Send the agreement early in the conversation rather than at the end. Reps who have done this before will tell you within a day whether your terms are workable, and that feedback is worth more than another round of internal edits.
Find reps to send it to
A clean agreement only helps if you are talking to reps who already call on your buyers. Search the RepResearch sales rep database to find independent reps by industry, territory, and the accounts they sell into, then send your agreement to the ones with real overlap.
